SEC Launches Probe of Chesapeake CEO's Well Stakes

The Securities and Exchange Commission has opened an informal inquiry into Chesapeake Energy Corp.'s controversial program that granted Chief Executive Aubrey McClendon a share in each of the natural gas producer's wells, a source familiar with the matter said on Thursday.

That investigation, being led by the SEC's office in Fort Worth, Texas, comes after Reuters reported about loans McClendon had obtained on those wells that raised concerns about a potential conflict of interest by the company's CEO.

Chesapeake said in a statement earlier on Thursday that its directors had never reviewed or approved McClendon's mortgages on stakes in those wells, reversing its assertions that its board of directors was "fully aware" of McClendon's financing transactions around the well ownership stakes.

"The Board of Directors did not review, approve or have knowledge of the specific transactions engaged in by Mr. McClendon or the terms of those transactions," the company said.

Reuters reported on April 18 that McClendon, who founded the company, had borrowed as much as $1.1 billion against his 2.5 percent interest in wells that he received under the company's "Founder Well Participation Program."

The company also said on Thursday that it would end that program in 2015, when the shareholder approval of the program that started in 2005 expires.

Chesapeake said "the statement last week the that 'the Board of Directors is fully aware of the existence of Mr. McClendon's financing transactions' was intended to convey the fact that the Board of Directors is generally aware" that McClendon had used the well ownership stakes as security for the loans.

One analyst said Chesapeake's new statement did not provide any reassurance that it was addressing the issues.

"How can this make me more comfortable?" said Phil Weiss, an analyst with Argus Research. "Either you're fully aware, or you're not. ‘Fully' and ‘generally' are two entirely different words."

But an investor said the move was a step in the right direction, and that it showed the company was listening to shareholders' complaints.

The company, the second-largest natural gas producer in the United States behind Exxon Mobil Corp, said it would not extend that program for McClendon beyond 2015, when authorization under a 2005 shareholder vote will expire.

Chesapeake said McClendon would disclose additional information about his ownership stakes in the wells, and the board would review the CEO's financing arrangements.

The loans, taken out over the past three years, were previously undisclosed to shareholders, analysts and academics said, raising concerns that McClendon's personal financial deals could compromise his fiduciary duty to Chesapeake.

Chesapeake shares were up 0.5 percent at $18.22 on the New York Stock Exchange.